1. ¹Department of Management and Marketing, University of Melbourne, Victoria, Australia
2. ²Department of Marketing, International Business and Strategy, Faculty of Business, Brock University, St Catharines, Ontario, Canada

Correspondence: S Johnston, Department of Management and Marketing, University of Melbourne, Parkville, Victoria 3010, Australia. Tel: +61 3 8344 4552; Fax: +61 3 9349 4293; E-mail: stewartj@unimelb.edu.au

Received 31 August 2004; Revised 13 February 2006; Accepted 19 September 2006; Published online 28 June 2007.

Abstract

We investigate the relationship between subsidiary size and subsidiary autonomy in multinational corporations (MNCs) and conclude that a quadratic inverted U-shaped model is the best fit to our data. Founding our arguments in resource dependence theory, we propose that, while the subsidiary is relatively small, increasing subsidiary size will correlate with increasing resources in the subsidiary and a consequent increase in subsidiary autonomy. This positive linear relationship persists until an inflection point is reached and subsidiary autonomy begins to decline. We argue that this is due to increasing subsidiary size bringing increasing coordination complexity, a need for greater inputs of managerial experience and expertise, and growing interdependence between the subsidiary and the rest of the corporation. Employing a sample of 313 Australian subsidiaries of mostly US, UK, European and Japanese MNCs, we use a three-step hierarchical regression to investigate controls only, linear and quadratic effects of subsidiary size on subsidiary autonomy. The quadratic inverted-U model supports and extends Hedlund's (1981) proposition. A post hoc investigation suggested that there might be value in exploring a sinusoidal relationship between size and autonomy.